Boca Benefits Consulting Group Inc.

Many cost strapped employers are looking for ways to have older, more costly, employees seek early retirement without violating any age discrimination statutes. Below are some healthcare considerations to think about if you are approached.

If retiring at approximately 62 years old, there are four  healthcare options that might be available to you:

• COBRA ( http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTML )
• Individual policy ( http://bocabenefits.com/GR 4-2009 Plans Brochure.pdf   )
• A “bridge” provided by the employer to age 65
• New employer with a group plan

COBRA with ARRA 2009 Considerations

In the case of COBRA, the expense may or may not be prohibitive depending on how your separation from service is actually defined. If “involuntary” between now and 12/31/2009 the 65% subsidy required by the American Recovery & Reinvestment Act 2009 would apply and for the nine months following the separation date your cost would be 35% of the normal 102% of true cost COBRA rates (i.e., true cost being what the total premium is for your enrollment type, not just the percentage of the cost passed along to the employee) for that period. Unless the ARRA 2009 were to be extended, the costs would go back to 102% of true costs at that point. See the piece at http://bocabenefits.com/stimulus_cobra.pdf for more info. Specifically, take a look at the income thresholds that might reduce the subsidy for you. Note: this is a zero cost subsidy for your employer.  One hundred percent of the subsidy amount is recovered via a payroll tax offset.

Individual Health Policies

Individually purchased policies are problematic for several reasons. Costs for just one person at 62 will run about $400-$500 per month (possibly less if an HSA plan). Essentially twice that for a couple. They are also not “guaranteed issue” meaning that your health status will be considered before an application is accepted and a policy issued. You can be declined, be up-rated or have policy benefit terms modified.

Early Retirement Bridge With Current Employer

A “bridge to 65” agreement with an employer is usually the best course for everyone. That is, the employer continues the employee on the health plan as if they remained an active employee until they reach Medicare eligible age. It is likely that the employee would be kept in prolonged “leave of absence” status to remain qualified for participation in the plan if no retirement health is offered otherwise. A highly paid, tenured employee can be replaced by a less experienced and less expensive new hire. Over the course of three years that could be worth in excess of $100,000 for the employer (i.e., likely substantially more). Most employers would jump at the chance to trade off three years of health care premium  for the separating employee and spouse (i.e., a guess at the cost: $36,000 pre-tax ) against the direct and indirect payroll savings. However, there is a potential downside to the employer. If the health plan is self-funded, every claim dollar incurred by the employee or spouse below some threshold per year (i.e., varies by employer size from $50,000 to $250,000;  threshold possibly higher for jumbo sized employers) will be a direct pre-tax cost to the employer. A million dollar organ transplant can eat up the entire payroll savings very quickly. It is therefore somewhat of a roll of the dice for the employer. Note: this also applies to “experience rated” insured plans to some degree where deficits from prior years are recoverable via going-forward underwriting.

It is very important that if negotiating a bridge type agreement that spouse coverage be an absolute deal breaker. You must have it if you have a spouse of roughly equivalent age who does not have a source of health care at his/her employment or who has retired earlier. You may be able to strike an agreement whereby a Medicare eligible spouse specifies that Medicare is to be “primary” and the employer’s plan will be “secondary” in claims payment order when age 65 is attained. That lessens the possible claims impact somewhat. You can also make the argument that more than likely the employer is going to own the employee and dependent claims under most of the above scenarios (i.e., stays employed, goes on COBRA, or falls under a bridge agreement).

Many large employers have canned early retirement packages on the shelf with the above kind of provisions. Human Resources professionals should be aware of them on the local/regional level. However, if that does not appear to be the case, an inquiry at the home office level might be required. HR people should also be willing to discuss these matters “off the record” to ensure no negative behavior by supervisors.

The Minimal Employment Scenario

Lastly, the new employer alternative. Many older early-retired people find work at the minimum hours and minimum skill levels required for them to qualify for health care coverage at a new employer. It occurs frequently at the ski resorts in Colorado where formerly high powered execs are now running ski lifts, acting as mountain guides or teaching lessons. If it fits your life style, it is a consideration. If it were to cramp the post-retirement life-style you envision, it obviously would not.

 Suggested Course of Action

Set up a confidential meeting with the appropriate HR person and discretely explore your options.

In mid-2008 BBCG began sending an email newsletter with various items of topical interest to benefits professionals, business owners and senior managers. As with this blog, we got somewhat distracted during the last few months with other priorities. We intend to have the next addition of The Insight out shortly. In the interim, below is a link to the archive page that contains the prior editions.

Archive link below:

http://archive.constantcontact.com/fs009/1102162493446/archive/1102248850983.html


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There are a number of pressing issues facing employers today including: employee loyalty, retirement and an aging workforce, health and wellness, employee advice and guidance, and the alignment of benefits objectives and strategies. The online benefits benchmarking tool BBCG can make available can help you address these challenges by providing the data you need to determine how your organization measures up compared to similar companies, with the goal to remain competitive in attracting and retaining top employee talent.

In our presentation we will show you how to use the insights contained in an industry-leading benefits benchmarking tool to help you maximize the effectiveness of benefits plans and be responsive to your employees’ benefits priorities.

It will help you answer such questions as:

• Are benefits strategies and objectives on target with a company’s peers’?
• How important are benefits in addressing the goals of attraction and retention of talented workers in a particular industry or region of the country?
• Which benefits are most commonly offered among a company’s peers, and which are most important to employees with similar characteristics?
• How do employees’ attitudes toward their benefits vary by generation?
• Which demographic groups of the workforce say their benefits communications effectively educate them?

For our clients and soon to be clients, we have a link to a one hour benchmarking webinar recently conducted in conjunction with Employee Benefits News. Please contact us at benchmarking@bocabenefits.com to set up an appointment to view the webinar with us.

Critical reading for: CEO/HR Director/Benefits Manager/CFO.
BBCG in conjunction with a major national carrier is now
capable of benchmarking for clients, and soon to be clients,
various employee benefit plan criteria against empirical
market research for peer companies as a means of attracting and retaining ciritical
talent. Industry, geographic region, company size,
profit or non-profit, public or private, employee generational/age parsing,
executive/white/blue collar parsing are all available to establish the analysis base.
Customized query criteria determined by client based on things about which it wants to know.

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